THE WEEK AHEAD

The Economic Data calendar for the week of the 13th of September through the 17th of September is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

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09/10/10 11:41 AM EDT

R3: SKX, PVH, TBL, M, Toys R Us, BONT

R3: REQUIRED RETAIL READING

September 10, 2010

Toys R Us is making one of the more aggressive moves heading into the holidays by increasing its footprint 2x by leveraging the pop-up store concept.

RESEARCH ANECDOTES

- Don’t be surprised to see Toys R Us stores in unassuming locations this season. After testing the pop-up store concept last year, Toys R Us has announced that it plans to open 600 for the holiday season more than doubling the company’s current base of 587 domestic Toys R Us stores. At an average size of 4,000 sq. ft., this concept will help manage inventory heading into an uncertain holiday season for retailers as well as provide optionality of adding new doors as it converted ~5% of last year’s pop-up stores to permanent outlet locations.

- While it was mentioned that sales in Van Heusen’s Heritage business continues to be robust with 15% growth expected in the 2H largely with key customers, Timberland’s contribution is likely to be overshadowed by existing lines including IZOD, Van Heusen, and Arrow. In a call with Timberland’s management, it was noted that its line is currently the #2 selling brand at Macy’s behind only RL. With the current offering in sportswear, future growth is likely to come from a collaboration that will add more outdoor product to the mix as well.

- It was only a matter of time before the Kardashian sisters made their way to New York. On the heels of their hit reality show, and the launch of a highly successful line at BEBE, producers of their show are now out looking for employees for a trendy new women’s clothing store. Not long ago the sisters were out shopping for retail space in the Meatpacking District.

OUR TAKE ON OVERNIGHT NEWS

Skechers Seeks Growth Through Adding Stores - Skechers USA Inc. is betting that a home-field advantage will help sell more gym-goers on its butt-toning sneakers. The second-largest U.S. athletic shoemaker plans to open 37% more stores this year for a total of 300 as it introduces Shape-ups shoes aimed at athletes. The footwear marks a departure from the debut shoe, which promised wearers they could “get in shape without setting foot in a gym.” That pitch helped catapult Shape-ups into the ranks of the best-selling athletic shoes in the U.S. and boost Skechers’s sales 55% to $997.6 million in the first half. Skechers plans to keep the momentum going by luring athletes through its own stores, where employees know more about the science behind the shoe, said Leonard Armato, who runs the Shape-ups business. <bloomberg.com>

Hedgeye Retail’s Take: Give credit where it’s due, Skechers did a solid job marketing and producing a toning shoe for the masses, but a true athletic brand Skechers is not. New stores will be key to selling through not only the new SRR running shoe, but also to help manage Shape-up inventory – particularly if demand continues to come in weaker for some of the new styles.

Bon-Ton Signs Deal With Emu Australia Brand - Bon-Ton Stores Inc. has signed on to be the exclusive department store to carry the Emu Australia brand. In addition to carrying the label’s signature collection of sheepskin boots, Bon-Ton will also sell Emu’s extended line of shoes and slippers — 18 different styles in all —during the fall ’10 season. Fred Kraft, VP and DMM for shoes at Bon-Ton, said the retailer plans to place Emu on the high-end side of the boot business. Emu Australia will be available at all 250-plus Bon-Ton locations across the Northeast and Midwest. <wwd.com/footwear-news>

Hedgeye Retail’s Take:Emu positions itself as the original authentic Australian sheepskin boot, a trend that continues to be relevant, however we’d argue the more attractive prospect for the partnership is the brand’s apparel business. Bringing that category into the fold would be a solid win for BONT if the relationship proves beneficial for both parties.

Strong Relationship Continues Between Macy's and Tommy Hilfiger - If there was ever a retailer and designer brand attached at the hip, it would be Macy’s and Tommy Hilfiger. “We meet every six weeks. They bring in 10 people, we bring in 10 people and we talk through the whole business,” said Terry Lundgren, Macy’s Inc. CEO. Since unveiling the strategic alliance in October 2007, making Macy’s the sole department store retailer in the U.S. of Tommy Hilfiger men’s and women’s sportswear, high expectations for growth have been sustained. “We expanded with a Tommy Hilfiger kids’ business this year, and we are looking into creating an active line, which will really be more of an athletic line,” Lundgren said. “We think there is an opportunity for dresses and maybe some dress-up product for men and women, and bigger handbag and shoe businesses. All of those pieces are still in front of us. We couldn’t be happier with the results. We actually ended up exceeding original expectations.” <wwd.com/retail-news>

Hedgeye Retail’s Take: PVH and Macy’s relationship continues mature. Given the success of both new lines like Timberland (see comment above) and existing, but newly acquired relationships such as Tommy, we fully expect PVH to continue to gain share at Macy’s in the intermediate-term.

Amer Sports to Accelerate Growth in Apparel/Footwear - Amer Sports said that under a revised long-term strategy, it will emphasize faster growth in apparel and footwear (softgoods) categories. It also plans to expand its own retail stores and e-commerce efforts. Amer Sports is the parent of Salomon, Wilson, Precor, Atomic, Suunto, Mavic and Arc'teryx. <sportsonesource.com>

Hedgeye Retail’s Take:With outdoor outerwear up +13% YTD and significantly outperforming other categories in sports apparel, this doesn’t come as a surprise. The Canadian-based company is looking to ride one of the few pillars of strength in sports apparel as it starts to shift from a wholesale business towards retail – a move that makes sense given its strong stable of brands.

TLC and Plus Sized Retailer Catherines Partner Up - TLC is marching down the aisle with the women’s clothing chain Catherines, setting in motion a marketing partnership designed to draw viewers to a new bridal-themed series. A plus-size spin-off of TLC’s long-running fashion series, Say Yes to the Dress: Big Bliss will bow on Oct. 1. As part of a promotional exchange, Catherines will place tune-in signage throughout its 460 retail locations, while running a half-page Big Bliss ad in its October catalog. In addition to the store’s retail efforts, messaging about the series will be posted on the Catherines Facebook page, which has a roster of 11,204 fans. Moreover, a feature providing additional information about Big Bliss will appear on the Catherines.com site. A co-branded ad will appear in the Bauer’s monthly lifestyle magazine First for Women, which has a rate base of 1.2 million. <brandweek.com>

Hedgeye Retail’s Take:A positive branding opportunity for one of Charming Shoppes’ struggling lines – these types of ‘show-to-store’ arrangements usually drive traffic if nothing else. Now it’s up to Catherines to execute on merchandise.

Ethan Allen Launches New Ad Campaign, Focus on Younger Demographic - Ethan Allen has launched a new ad campaign, which aims to convince consumers that they don't have to splurge on lots of furniture to create a stylish home. The home furnishings retailer is introducing a series of TV, print, online and direct mail ads with a recessionary pitch. Ads position Ethan Allen as an “aspirational” and “attainable” brand through slogans like: “A great room starts with a great piece.” And: “Relax. You don’t have to do it all at once.” The campaign--which is the first new work since Ethan Allen shifted the account to Interpublic Group-owned McCann Erickson in July--is part of the company's strategy to reposition itself with younger consumers. Americans in their 40s, 50s and 60s currently make up the brand’s core demographic. But Ethan Allen, which also offers interior design services, is looking to connect with consumers in their 30s and 40s, who also have some discretionary income to spend. <brandweek.com>

Hedgeye Retail’s Take: This just feels like a brand that can’t find itself. Ethan Allen is no longer considered a higher-end brand, but it certainly isn’t value/discount either, especially with the success of the Ikeas, Home Goods, and Kohls of the industry that have captured much of the lower-to-middle end consumer. Interpublic Group will have its work cut out for itself getting the company over the stigma of being a tired feminine brand.

Seasonal Hiring Likely to Rebound on Brighter Retail Outlook - Major retailers are decidedly more upbeat going into this year's holiday season than they were a year ago, according to a survey released by Hay Group, a global management consultancy. While that will mean more seasonal hiring, high unemployment rates will ensure tough competition for retail jobs. <sportsonesource.com>

Hedgeye Retail’s Take:With traffic generally still less than robust, we’d be a bit surprised to see retailers ramp aggressively at this point in the season. That said, the pop-up store concept could catch on more broadly (see our Toys R Us comment above), which could indeed drive demand for seasonal hiring.

Progress With Shopkick - Shopkick has made quite a name for itself in recent months. The location-based iPhone app recognizes when users are near a retail store, then offers them rewards for coming closer to it and bigger rewards for stepping inside. Shopkick first made a splash when it received $15 million in funding this summer—before it had even rolled out its retail rewards app. Then, a scant month later, it went live with the app and announced deals with big-name retailers including Best Buy Co. Inc., Macy’s Inc., The Sports Authority and teen apparel retailer American Eagle Outfitters Inc. American Eagle has been using shopkick technology in 52 of its stores in New York, Chicago, Los Angeles and San Francisco for about a month, says Mike Dupuis, vice president, marketing and operations for American Eagle Outfitters Direct. And, he says, the retailer plans to roll out the technology to all its stores soon. <internetretailer.com>

Hedgeye Retail’s Take:Reminiscent of retractor beams a la Star Wars, this app is just getting started. As if navigating the malls during the holidays wasn’t challenging enough, take caution as more shoppers will be glued to their iphones tracking deals this season.

China: Five Footwear Companies Draft International Footwear Standards - Five mainland Chinese footwear companies, including Kangnai, Aokang, Red Dragonfly, Taima, and Aogusidu in Wenzhou, have come together to take part in the drafting work for ISO/TC216 technical standards that include the standards of anti-microbial and harmful materials contents, according to the Wenzhou Quality and Technical Supervision Administration. <fashionnetasia.com>

Hedgeye Retail’s Take:While it appears at first to be a proactive move to increase standards, China is in the midst of several high-profile corporate scandals involving sub-standard systems and processes making it easier for international businesses to shift operations to other countries. This move alone won’t move the needle – more will have to follow.

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09/10/10 10:59 AM EDT

INSIDE THE HEDGEYE NOTEBOOK: Sept. 10, 2010

I’m going to start trying to bullet point data, prices, and signals that I fail to weave into my Early Look notes. Here's a partial glimpse into those notes.

In the last 24 hours, here are some green (bullish) and red (bearish) highlights from my notebook:

XLF (Financials) remain broken from an intermediate term TREND perspective

Harrisburg, PA default pending if they miss the September 15th payment

Keith R. McCullough

Chief Executive Officer

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09/10/10 09:44 AM EDT

THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - September 9, 2010

As we look at today’s set up for the S&P 500, the range is 38 points or 1.74% (1,085) downside and 1.70% (1,123) upside. Equity futures are trading higher tracking gains across European equities as the region’s banking and mining stocks rebound. Today's macro highlights include: Initial Jobless Claims and July Trade Balance.

AvalonBay Communities (AVB) said its AvalonBay Value Added Fund II unit bought an apartment community in Calif. for $98.5m

Fuqi International Inc. (FUQI) got SEC subpoena from for failing to file periodic reports on time

Men’s Wearhouse (MW) forecast 3Q adj. EPS 40c-47c vs est. 41c

Questcor Pharmaceuticals (QCOR) said FDA delayed a decision on its application to sell its Acthar drug as treatment for seizures in babies

TNS (TNS) agreed to buy Cequint for as much as $112.5m and said it will buy back up to $50m of its stock

SECTOR PERFORMANCE: All sectors were up yesterday except XLU. Tough to find a specific catalyst for yesterday’s performance, though an improvement in the risk backdrop surrounding Europe and the momentum behind the M&A rumor mill also offered some upside.

Asian markets were mixed today even though concerns about European debt problems were addressed by successful bond auctions yesterday.

EUROPE

FTSE 100: +0.51%; DAX: +0.12%; CAC 40: +0.35% (as of 04:55 ET)

European markets opened lower, seeing some profit taking after yesterday's strong gains.

Ireland's Finance Minister looked to reassure markets over Anglo Irish Bank saying the government hopes to produce definitive figures on the cost of its restructuring by the end of October.

No movement on the part of the BOE; 0.5% benchmark interest rate and the £200B asset purchase program remains unchanged.

Banks and technology groups are amongst the leading gainers with all but four sectors trading higher. US futures trade higher.

Howard Penney

Managing Director

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09/10/10 09:14 AM EDT

EARLY LOOK: We're Used to Winning

This note was originally published at 8am this morning, September 10, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

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"We're not used to 14-9 victories, but we're used to winning." -Drew Brees

Q: For all of the overpaid professional politicians in Washington this morning - what do the mid-month 2010 US stock market rallies of February, July, and September have in common?

A: Winners (Winter Olympics, World Cup, NFL Season).

Investment Conclusion: politicians, stop intervening in this game and go away.

New Orleans Saints quarterback, Drew Brees, reminded the real grinders of this country what makes us wake up every morning expecting to win. Brees doesn’t point fingers. He doesn’t fear monger either. He’s one of the fastest in the world at changing his mind as the game that’s in front of him changes. He makes calls and he holds himself accountable to them. Drew Brees is an American Risk Manager that is used to winning.

What does this have to do with managing risk across global markets this morning? A lot. The behavioral side of analytics and how it applies to decision making in modern day finance is still in its very early days.

Neuroscientists, like my friend Dr. Richard Peterson, are starting to enlighten us about the intersection between investor psychology and financial markets. I’ve mentioned his 2007 book “Inside the Investor’s Brain” before as one of the most important risk management books I’ve ever read. Peterson just published “Market Psych” on September 7th, and it’s on the top of my reading pile this morning.

The intersection between confidence and fear is one of the most important factors in my multi-factor, multi-duration, risk management model. If you have a market that’s dominated by what the government is going to do next, and the core marketing message of that government is fear mongering about great depressions and keeping “risk-free” rates of return at ZERO percent, the impact on confidence becomes very real.

I don’t need a loser who gets paid to politically pander to tell me how to think about market risk or the bottoms up factors in meeting my employee payroll. Nor do I need them to eliminate the rate of return I have on the hard earned savings in my family’s bank account. What I really need is for the government to just stop and leave me and this market alone. You want a solution, Mr. President? Try that.

From the front line manager at a McDonald’s this morning to an offensive lineman protecting Drew Brees’ blind side last night – these are the men and women of this country that inspire our competitive spirits and drive a positive confidence interval in our decision making. Americans are back from Labor Day vacation showing a renewed spirit to persevere – this time, Mr. Big Government, just leave them alone.

I’m certain that I won’t be accused of being bullish since April, but don’t confuse the winning side of this game with a lack of confidence. For me, there is no such thing as the “risk on, risk off” game of finance often bandied about by pundits who have never traded a P&L in their life. Risk is always on. Confidence isn’t about being bullish or bearish. It’s about being right.

Not unlike the NFL on NBC.com last night, our revolutionary Hedgeye Risk Management Portal shows you everything that we do and when we do it. There is a replay on the competitive fields of real-life folks – we’re early in showing this to the world of finance. We think others will follow.

Since September 3rd, you’ll notice that this cuddly Thunder Bay Bear has done nothing but BUY long positions and COVER short positions. It’s not my job as a risk manager to bypass calling an audible when the game in front of me is changing. In the last week, Americans have become more confident and so has the US stock market’s internal risk management factors on our immediate term TRADE duration.

The top 3 plays of the week that are driving US consumer confidence higher are as follows:

2. MBA Mortgage Applications rose for the 2nd consecutive week by +6.3% on a week-over-week basis.

3. Weekly US jobless claims dropped for the 3rd consecutive week to 451,000 this week down from 500,000 in the week of August 23rd.

You can go back and see how many of our short positions we covered between August 24th and 25th (when confidence and mortgage applications bottomed). The instant replay doesn’t lie; people do.

The bottom line then was that the volatility index (VIX), or one of the clean-cut measures of concurrent fear was peaking in the high-20’s. All the “valuation” models that the Warren Buffett wannabes of this game use don’t work until prices reflect the appropriate Fear-Discount. If you are going to strap on the risk management pads and actually trade this game, keep that in mind.

My greatest fear about NOT being short the SP500 (SPY) here is that after I get fired up watching some of America’s finest on the field on Sunday, some “government is good” loser comes back into my life on Monday with another failed policy game plan that smokes all of the confident players in this country right back into their holes.

My immediate term TRADE lines of support and resistance for the SP500 are now 1085 and 1123, respectively. Go Redskins.

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